De La Rue's Response to the PAC Report

DE LA RUE’S RESPONSE TO THE PAC REPORT
16th August 2012
De La Rue has been an investor in Kenya since 1992 when we invested almost 15 billion shillings in the construction of and equipment for a modern Currency Print works in Ruaraka, Nairobi at the invitation of the
Government of Kenya.

In the last five years we have contributed over 5 billion shillings to the Kenyan economy delivering a total benefit of over 35 billion shillings since 1992 (all figures calculated assuming current exchange rates). De La Rue’s factory in Ruaraka is one of 7 first class production facilities De La Rue operates around the world which are involved in the production of over 150 of the world’s currencies.

Having sent a delegation to present and address all the questions from the Public Accounts Committee (PAC) relating to the currency printing contracts between the Central Bank of Kenya and De La Rue in May, it is with some regret we consider it necessary to respond publicly to the findings detailed in the report.

We wish to respectfully highlight what we believe to be certain errors and omissions in the report.

VALUE DELIVERED TO THE KENYAN TAX PAYER

The PAC report states:

“The Committee ¡s satisfied that the tax payer lost Kshs. 1.8 bn being the price difference between the interim orders and the contract.... for printing 1.71 billion pieces of banknotes.”

De La Rue strongly disputes this point.

De La Rue was originally awarded the contract to print New Generation banknotes in Malta. The decision to print in Malta was solely predicated by our desire to have our offer compared on the same basis as our overseas competitors and not by any technical constraints relating to the Ruaraka factory.

When this contract was subsequently cancelled we were asked to print interim orders of the current generation banknotes at our factory in Ruaraka. It is misleading to consider comparative pricing for new generation notes and current generation notes as it is like comparing sugar and salt — although similar they are of a different technical specification, a different size and significant differing quantities involved.

As part of De La Rue’s verbal evidence to the committee it was stated that De La Rue operations in Kenya contributed at least Kshs 1 billion p.a. to the Kenyan economy. In the five years since the cancellation of the contract Kshs 5 billion has been pumped back into the economy. As requested by the PAC, De La Rue provided a detailed written breakdown within the specified 7 days which actually showed how the Ruaraka factory had provided Kshs 1.25 billion in the previous year in the form of taxes, wages, local purchases etc. 

We consider it regrettable that this document has not been appended in report along with other documents submitted by De La Rue.

Rather than a loss during this period the Kenyan tax payer has actually gained a benefit in the region of Kshs 2 billion. In 2008 according to the PAC report, the Cabinet of the Government of Kenya approved the commencement of negotiations with De La Rue for ajoint venture and retention of onshore production of Kenyan Currency safeguarding 260 highly skilled Kenyan workers and keeping the revenue flow into the Kenyan economy.

CAPABILITY OF THE DE LA RUE RUARAKA FACTORY

The PAC report states:

“When the committee toured the Ruaraka plant...it observed that most of the machines in use were analogue while modern technology had shifted to digital.”

De La Rue is keen to point out that this statement makes no sense.

The source of this observation is unknown however it should be noted that the term digital printing usually refers to things such as laser printers (often used by counterfeiters) and is never used for referring to printing equipment used in the banknote industry. 

The equipment at the De La Rue’s Ruaraka factory for printing currency was most recently refurbished 3 years ago. The banknote printing presses in the Ruaraka factory work on exactly the same principle as printing presses in all other banknote factories.

A number of witnesses detailed in the report have stated that De La Rue chose to bid for the New Generation banknote contract based on production at the De La Rue factory in Malta because the Ruaraka factory had neither the technology nor capacity to print these banknotes. This is not true and we have already stated the decision to use the Malta facility was solely predicated by our desire to have our offer compared on the same basis as our overseas competitors.

With the current staffing levels the Ruaraka factory has a capacity of 600 million notes p.a. However when demand requires higher levels of production this can be increased by changing staffing levels and shift patterns. 

The peak production year to date of the Ruaraka factory was 2010 when 928 million notes were produced. The contract for the supply of 1.71 bn New Generation banknotes called for delivery between August 2006 and December 2009, a period of three and a quarter years. 

Thus with staffing levels as they were in 2010, a total of 3.016bn banknotes could have been produced during this period. Given the requirement of 25% export from the factory this would have left capacity of 2.26bn banknotes for the New Generation notes during the period of the contract.

THE JOINT VENTURE WILL DELIVER

The PAC report states:

“It must not tie Central Bank of Kenya to signing a 10 year currency printing contract with De La Rue Company. This contravenes Government procurement regulations and procedures since the Bank cannot guarantee a fair market price for currency printing unless there ¡s a competitive procurement process.”

De La Rue is surprised by this statement for two reasons.

Firstly the Government of Kenya and Treasury were advised by the esteemed legal firm of Mboya Wangong’u & Waiyaki on the legality of the proposed contract throughout the negotiations relating to the
Joint Venture. The contract was also approved by the Attorney General of Kenya.

Secondly, previous long term agreements between De La Rue and the Central Bank of Kenya have contained provisions for biannual review of bank note prices in the light of prevailing market prices and technological advancements. The PAC report notes that during the period of these contracts the prices charged by De La Rue actually dropped as a result of these provisions.

We therefore respectfully request that the contents of the report are corrected to take into consideration all the points above and to prevent a misleading impression being given to the public. This will also remove what is a significant disincentive and barrier to investment in Kenya for overseas companies.

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